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Kelowna council set to decide on electric utility sale plan

Kelowna city council will decide Monday if it wants to sell the assests of its electrical utility to FortisBC Inc.

At the scheduled council meeting, councillors will consider the Electrical Utility Restructuring Opportunity's Asset Purchase agreement between the city and Fortis. Council will also consider initiating the alternative approval process to seek the approval of the deal.

The agreement is a legal document that, if approved, would pave the way for the city to implement the what the city is calling an opportunity to shift Kelowna from its current role as electrical utility owner to a new role as an investor. The deal would:

• transfer its electrical utility assets to FortisBC for $55 million,

• use the proceeds from the transfer to buy shares in FortisBC's parent company, Fortis Inc., subject to approval by B.C.'s Inspector of Municipalities.

The agreement was developed through a lengthy process that began with the recognition that the city's existing electrical utility business model is not sustainable.

Financial returns to taxpayers under the current model— $2.1 million per year—are vulnerable to different pressures, says the city, in particular changes in the wholesale price of electricity, future capital spending on system infrastructure andincreases in operating and maintenance costs.

The transfer of Kelowna's electrical assets to Fortis, combined with an investment of the $55 million in proceeds from the sale, would provide taxpayers with long-term, annual returns that are expected to meet or exceed the earnings possible under the city model current model, says City Hall.

The need for such returns has been a driving principle for the city since the it started negotiations about the future of the city utility.

The city had initially anticipated investing its proceeds in FortisBC debt (i.e., bonds). That intention was announced in July, when staff reported its plan council in the form of proposed memorandum of understanding signed by the the city and Fortis.

In recent months, however, the City revisited its plan after determining an investment in Fortis Inc. common shares represented the better investment option.

A purchase of $55 million of Fortis Inc. common shares offers the potential to generate returns that will increase over time in tandem with increases in share value, and the accompanying increases in the growth rate of dividend payments, said a news release issued by City Hall Thursday afternoon.

"Using conservative estimates, the investment of the city's proceeds in Fortis Inc. shares would be expected to generate annual earnings for taxpayers that would increase from $2.1 million to $4.5 million over 30 years,” said John Vos, general manager of community services.

The city hired the accounting firm of Deloitte and Touche to review the agreement and asked it to provide an opinion as to the fairness of the purchase price of $55 million to the existing city electricity customers and the city taxpayers as a whole. In its report, the accountant said it felt the purchase price was fair.

The deal requires the approval of Kelowna electors. So,if approved by council, the city intends to use the the alternative approval process rather than put it to a municipal vote.

The alternate approval process puts the onus on opponents to gather the required number of signatures on petitions in a set time in order to force a vote. If council initiates the process on Monday, residents will be given 30 days, from Sept. 26 to Oct. 26, to object. The transfer will be considered approved if fewer than 10 per cent of electors sign objection petitions.

To learns more about the proposed deal, go to kelowna.ca/cityprojects.

Since 2000, FortisBC has worked with Kelowna as the city's electrical contractor in planning, operating and maintaining municipal electrical utility assets. The company also provides electricity through its own utility to all parts of the community that are not served by the city, and provides natural gas services throughout the entire municipality.

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